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Rose Rock Midstream LP (NYSE:RRMS)

Q3 2013 Earnings Call

November 12, 2013 11:00 AM ET

Executives

Alisa Perkins – IR

Norman Szydlowski – President and CEO

Robert Fitzgerald – SVP and CFO

Peter Schwiering – VP

Analysts

Bradley Olsen – Tudor, Pickering, Holt & Co. Securities, Inc.

Stephen Maresca – Morgan Stanley

Brian Zarahn – Barclays Capital

Craig Shere – Tuohy Brothers

William Frohnhoefer – BTIG

Operator

Good morning, ladies and gentlemen, and welcome to the SemGroup Corporation and Rose Rock Midstream Third Quarter 2013 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder this call is being recorded.

I would now like to turn the call over to Alisa Perkins. Please go ahead.

Alisa Perkins

Thank you for joining us today. The presentation for today’s call is available under the Investor Relations section of our website at semgroupcorp.com or rrmidstream.com.

Before we begin our prepared remarks, I would like to bring your attention to slides two and three for certain disclaimers and other cautionary statements as remarks within our presentation may contain forward-looking statements. Also included in the presentation are various non-GAAP financial measures, such as adjusted gross margin, EBITDA and adjusted EBITDA. Reconciliations to the most directly comparable GAAP financial measures are included in the presentation and can also be found on our website.

With that, I’d like to turn the call over to Norm Szydlowski, our Chief Executive Officer.

Norman Szydlowski

Thanks, Alisa. In addition to Alisa, I’m also joined today by Bob Fitzgerald, our Chief Financial Officer and Pete Schwiering, Chief Operating Officer for Rose Rock Midstream.

Before we go over our third quarter earnings I’d like to take a moment to discuss yesterday’s announcement related to another dropdown transaction between SemGroup and Rose Rock. As we announced both companies intend to pursue an agreement for Rose Rock to acquire an additional one-third interest in SemGroup Pipeline which owns 51% of the White Cliffs pipeline from SemGroup. Following the proposed transaction Rose Rock will indirectly then own 34% of White Cliffs pipeline. Rose Rock expects the acquisition will be accretive to distributable cash flow for their Partnership unit holders.

As contemplated Rose Rock will fund the proposed transaction with a combination of debt and units for SemGroup and we expect it will close before year-end. The transaction is subject to execution of an agreement between the two companies review and recommendation by the conflicts committee of the general partners of Rose Rock and the approval of the two companies’ Boards of Directors.

Moving to our results I am pleased to report that both the companies had a strong third quarter. Bob will get into the details here shortly, but I would take a moment to highlight guidance. We are increasing the 2013 adjusted EBITDA guidance for both companies given their continued strong operating and financial performance this year. For SemGroup we’ve increased guidance to between $180 million and $190 million, up from our previous guidance range of $165 million to $175 million.

For Rose Rock we are raising the guidance to between $63 million and $66 million, that’s up from our previous guidance range of $56 million to $60 million. This increase does not include the proposed acquisition of the additional interest in the White Cliffs pipeline.

With respect to other key projects, SemGroup successfully integrated the recently acquired Mississippi Line gas gathering and processing assets into our Northern Oklahoma system. The Rose Valley one plant is expected to be completed in the first quarter of 2014. The Rose Valley two plant is built and we’ve got storage in Telsa and currently scheduled to be online the first quarter of 2016. Due to increasing available capacity in our Northern Oklahoma system we decided to redeploy a smaller unit of 35 million cubic feet a day cryogenic plant from that Oklahoma system to Sherman, Texas the cryo plan will replace the existing clean oil facility currently processing the Sherman volumes. This allows us better processing efficiency and additional capacity to support our Sherman customers. Their redeployment will be online in the second quarter of 2014 and it will deliver about $2 million of incremental EBITDA annually.

The Wattenberg Oil Trunkline finished on schedule when in to service at the beginning of this month. And our Glass Mountain pipeline is on plan to wrap construction by year end and begin operations in the first quarter. At Rose Rock we’ve taken on two recent acquisitions, our trucking operation that was from Barcas Field Services, that one closed on September 1st. We also announced that we’ll acquire the Tampa pipeline from Noble Energy, that one’s backed by a long term take or pay customer transportation agreement. This is a 12 mile 12 inch diameter pipeline that runs from Platteville to the Tampa Colorado rail facility.

This acquisition is in line with our strategic plan of operating fee-based transportation assets or expanding our footprint across the area which is experiencing the rapid growth and strong demand for Midstream services. SemGroup and Rose Rock were both very fortunate to escape damage from the recent of flooding in Colorado; our Watternberg Oil Trunkline, the Platteville station and the White Cliffs pipeline. Again we are very fortunate that they experience no damages, none of our people were affected due to these floods conditions.

The White Cliffs pipeline expansion project wasn’t affected and construction continues on track. The pipe has been delivered and all the major equipment for the project has been ordered. We still expect this project to be complete by midyear 2014.

If you look at slide six of our earnings presentation you will see that we continue to find attractive growth projects in both crude oil and in natural gas. We’ve changed our planned capital spending for 2013 to $825 million and that’s due to the timing of cash calls on the White Cliffs pipeline expansion that shift 25 million into 2014.

As usual if you take a look at slide number seven we provided a breakout of all the projects previously discussed. Now I will turn the presentation over to Bob who will review our financial performance.

Robert Fitzgerald

Thanks Norm. Beginning on slide eight of our earnings presentation and as noted in our press release yesterday we reported a net loss of $1.9 million for the third quarter, $5.5 million less than our prior quarter. As we’ve discussed before SemGroup’s net income includes our equity share of NGL Energy Partners earning on a one quarter lag basis. As a result we reported a $3.3 million net loss pertaining to our share of NGL earnings for the quarter-ending June 30th primarily related to the seasonal nature of the propane business.

SemGroup’s adjusted EBITDA was $52 million for the third quarter, up 20% on a quarter-over-quarter basis and up 58% when compared to last year’s third quarter results. This excludes $3.6 million of acquisition costs related to the Mississippi Lime acquisition as described in the reconciliation in the appendix. Our adjusted EBITDA for the nine months of this year was a $131 million, an increase of 44% over the prior year due largely to higher volumes in our U.S. crude and gas businesses.

Focusing specifically on our segment results the increase in the third quarter adjusted EBITDA was due largely to our gas segment. SemGas was up $2.4 million versus the prior quarter driven by higher processing volumes in the Mississippi Lime play. Our Canadian gas business SemCAMS was up nearly 50% over the second quarter due to a combination of higher maintenance CapEx recoveries, volume growth from new well connects and lower operating expenses. SemMexico reported a 44% increase in adjusted EBITDA due to higher sales volumes as road construction demand accelerated during the quarter.

Turning to our crude segment adjusted EBITDA was up 2% as additional marketing volumes and the one month impact of the Barcas Field Services acquisition was offset by decline in pipeline transportation margins. White Cliffs pipeline net EBITDA was up slightly on flat volumes. Volumes originating at our Platteville terminal increased by 4% compared to the prior quarter as we continue to benefit from our partners Wattenberg horizontal drilling expansion. We do not expect to see any significant negative impact on volumes being delivered at our Platteville terminal as the producers had generally recovered from their earlier floods. In fact White Cliffs is currently in proration as nominations or throughput volumes are exceeding our pipeline throughput capacity.

Next moving to your capitalization and liquidity position on slide 10, we ended the quarter with total consolidated debt of $540 million. SemGroup’s consolidated debt to capitalization ratio is 30% and our net debt-to-adjusted EBITDA leverage ratio is 2.7 times. We ended the quarter with total liquidity of $674 million.

Moving next to Rose Rock’s results on slide 11; we reported adjusted EBITDA of $15.7 million, up slightly from the second quarter as an increase in marketing volumes and margins were somewhat offset by a decline in pipeline transportation margin that I previously mentioned. Our marketing margin increased nearly 50% over the second quarter as markets improved during the summer. Transportation margins declined in the third quarter due primarily to an increase in short haul volumes on our Kansas Oklahoma system. The decline in transportation margins was mitigated slightly by the earnings attributable to the Barcas Field Services acquisition for the month of September.

Rose Rock spent $97 million in capital during the first nine months of the year. And we are on target to spend $113 million through 2013. You can see that we’ve updated our planned capital spending for 2013 to include the Tampa Pipeline acquisition from Noble and to reflect our latest forecast on the timing of our White Cliffs Pipeline capital call. These updates do not include the proposed drop down transaction previously discussed.

Rose Rock’s capitalization and liquidity position is presented on slide 13. As previously announced during August Rose Rock issued 4.75 million common units in order to pre-fund our capital expenditure requirements and to repay debt. As a result Rose Rock’s debt-to-capitalization dropped from 42% at the end of the second quarter to 18% at the end of the third quarter. Similarly Rose Rock’s leverage ratio dropped to 1.4 times for the third quarter. Rose Rock is well capitalized to fund its near term organic growth and acquisition needs. Specifically we do not expect to access the public equity capital market to finance the next drop down transaction from SemGroup.

On September 20th Rose Rock renewed its $385 million senior secured credit facility to mature in September 2018. The amendment also allows Rose Rock to incur unsecured or subordinated debt without limitation subject to certain conditions and reduces the interest rate and commitment fees related to the revolving credit facility.

As announced yesterday SemGroup’s Board of Directors declared an increase to the quarterly cash dividend to common shareholders of $0.21 per share resulting in an annualized distribution of $0.84 per share. This represents a 5% increase from the previous quarterly dividend to $0.20 and 10.5% increase in the dividend since it was initiated earlier this year.

We previously announced our seventh consecutive quarterly increase in the Rose Rock distribution for limited partner unit to $0.45 per unit or $1.80 per unit on an annualized basis. The third quarter distribution represents a 2.3% increase over the prior quarter’s distribution and a nearly 15% increase over the third quarter of 2012 consistent with our 2013 guidance for distribution growth of 15% on a year-over-year basis.

As outlined and detailed in the appendix of our earnings presentation Rose Rock’s distributable cash flow for the quarter was $13 million. Our distribution of $11.6 million declared on October 24th represents a coverage ratio of 1.12 times for the quarter.

I’ll now turn the call back over to Norm for some final comments.

Norman Szydlowski

Thank you, Bob. We are right on track with the 2013 goals. We continue to deliver on and exceed our financial targets, which is shown in the increased guidance. We’ve increased the SemGroup dividend and the Rose Rock distribution. Excellence, safety and environmental performance are always at the top of our list. And we remain focused on our long-term objective of transitioning SemGroup into a GP Holdco with our drop down strategy.

The search for my successor is progressing. The Board has been interviewing potential candidates and we are in the final stages of identifying a new CEO. And I can’t comment on the exact timing just yet but we’ll make an announcement as soon as the successor’s named. And you should know of course that I am committed to continue to make sure that we lose no momentum and also have a smooth transition.

So thank you all and Kate we’ll now open up the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from the line of Bradley Olsen with TPH. Your line is open.

Bradley Olsen – Tudor, Pickering, Holt & Co. Securities, Inc.

Good morning everyone.

Norman Szydlowski

Good morning, Brad.

Bradley Olsen – Tudor, Pickering, Holt & Co. Securities, Inc.

Quick question about Rose Valley. It looked as though in your presentation that you are adding an additional $100 million to $150 million in spending in ‘15 and ‘16 beyond the previously announced $470 million or so? Would you mind commenting on what is driving that incremental spending and what are the kind of incremental returns that you or the marginal returns on those incremental well connects that you are envisioning in those out years?

Robert Fitzgerald

Hello, Brad this is Bob. I’ll take that question. In terms of I think if you looking at the slide 19 where we talk about the growth plans for the Mississippi Lime acquisition and that incremental spending is related to two things. One is that you are referring the gathering system build out, that’s based upon our current projection, a combination of the Chesapeake and Sinopec growth plans as well as other producers out there that we’re going to have to invest to lay lines out, compression and other field equipment to bring those volumes in.

And I would expect that the multiples on that will be consistent with what we’ve reported in the past. You can also see that we have some additional capital dedicated to the completion of Rose Valley too in that timeframe right above that.

Bradley Olsen – Tudor, Pickering, Holt & Co. Securities, Inc.

Okay. And so just reconciling those numbers with your CapEx table the $470 million last quarter I think all that you mentioned last quarter was the $470 million, that was kind of a nine to 10 times multiple would it be fair to assume that we’re still looking at nine to 10 times on the $470 million and then that final kind of $100 million to $150 million in ‘15 and ‘16 would be more comparable to the kind of five to seven times you’ve announced with organic projects in the past?

Robert Fitzgerald

Yeah the nine to 10 multiplier you are referring to there is going to be a development through that process. So we are looking at that growth going through the 2016 after the second plant is up and running. So just to clarify that we’re looking at nine times multiples for the existing run rate in 2016 after the second plant up.

Bradley Olsen – Tudor, Pickering, Holt & Co. Securities, Inc.

Okay. So just make sure I’ve got, so the $600 million to $650 million of the new total spending I should think of the nine to 10 times multiple as being on that total capital amount after the planned start up in ‘16?

Robert Fitzgerald

That is correct

Bradley Olsen – Tudor, Pickering, Holt & Co. Securities, Inc.

Okay. Got it, thanks. As far as just the plant relocation from Oklahoma to Texas what is the play that you’ve seen down in Texas that gives you that potential for development?

Norman Szydlowski

This is Norm. It’s really a matter of efficiencies there down there in North Texas where we’re currently maxing out an older technology a lean oil plant and so effectively what we’re doing as opposed to looking at anything like Mississippi line growth ramp it’s really using a better technology now that all this new capacity that we’ve been adding and the new plants coming in Northern Oklahoma and they are layering in them altogether with Nash, Oklahoma and Rose Valley and Hopeton, it allows us to put that to work there and get some incremental efficiencies and hence about $2 million a year in annual EBITDA but it’s more pointed, more looking toward efficiency improvement.

Bradley Olsen – Tudor, Pickering, Holt & Co. Securities, Inc.

Okay, great. So I shouldn’t read anything into their Fort Worth basin exposure in North Texas around Sherman or I shouldn’t also think about anything kind of in Mississippian Lime making you think that you wanted to reallocate assets away from that play?

Norman Szydlowski

Oh not at all I am glad you asked that question. It’s absolutely a matter of the new capacity. Remember we added the 125 million cubic feet per day plant recently this year and we had another 200 coming on the first quarter. We can bring forward Rose Valley too, which is another 200 and we’re interconnecting all these plants together so that allows us to take advantage of moving a small unit down and getting these efficiencies there internal.

Bradley Olsen – Tudor, Pickering, Holt & Co. Securities, Inc.

Okay, great. And on the small Tampa pipeline deal that you announced how much of a hedge is that for – to the extent that there are volumes that move on rail rather than on White Cliffs in any given period is that right to think about that is it hedged in any way or is it more of just kind of stable fixed fee asset?

Robert Fitzgerald

Brad, this is Bob. I think we look at that as a stable fixed fee asset in the sense we’re going to continue to participate in the mid-stream segment moving barrels around and wherever they might want to go. Our goal is to continue to grow our business than to deliver those barrels out.

Bradley Olsen – Tudor, Pickering, Holt & Co. Securities, Inc.

And so if that volume metric or cost of service type asset.

Robert Fitzgerald

It will be a leased pipeline.

Bradley Olsen – Tudor, Pickering, Holt & Co. Securities, Inc.

Okay. And the last one from me the proration that you mentioned at White Cliffs does not proration reflect a higher volume than the 67,000 barrels a day reported in the third quarter. At the last quarter you mentioned trying to get into the kind of low to mid 70s with some engineering tweaks on the line?

Peter Schwiering

This is Pete, I will take that one. We’re getting between 69,000 and 70,000 barrels out of Platteville and then additional volumes about additional seven at of Healy. So we’re becoming patient now with White Cliffs and trying to offset the proration difficulties.

Bradley Olsen – Tudor, Pickering, Holt & Co. Securities, Inc.

So quarter-to-date you’ve seen a sequential increase in volumes versus the third quarter results?

Peter Schwiering

That’s correct.

Bradley Olsen – Tudor, Pickering, Holt & Co. Securities, Inc.

Great. Thanks a lot guys.

Norman Szydlowski

You’re welcome Brad.

Operator

Our next question comes from the line of Steven Maresca with Morgan Stanley. Your line is open.

Stephen Maresca – Morgan Stanley

Good morning Norm, Bob and Alisa how are you?

Robert Fitzgerald

Fine Steve.

Stephen Maresca – Morgan Stanley

Nice to see the new drop there. A few questions from me. If you could talk a little bit more about the designated growth projects that 150 to 250 for 2014 on slide seven, do you have the probability with these project happening is that 80%, 90%, 100% type of situation what’s the biggest project and what other ones are in that those numbers there?

Robert Fitzgerald

Hello, Steve this is Bob I will take that one. The undesignated 2014 number that you’re referring is related to project that we’re currently exploring as part of our budgeting process. We don’t have any additional color to provide at this point in time but we will provide additional information when we give our 2014 guidance in late February when we talk about our year-end numbers.

Stephen Maresca – Morgan Stanley

Okay. And then in terms of this new drop a third of SemCrude can you help us in terms of thinking about what type of multiple we should be thinking about on that drop?

Robert Fitzgerald

It’s a little premature to be talking about multiples on that given that the two boards, the Board of Rose Rock Midstream and the board of SemGroup Corp are working out the valuation today. So when that is finalized we’ll certainly comeback and make some announcements about the timing and the specific activities around that but right now little premature to give any indication on multiples.

Stephen Maresca – Morgan Stanley

Okay. On the SemGroup dividend you went up a penny this quarter so I think second in a row doing that, is this fair to think about this as a run rate of increase going forward for SemG?

Robert Fitzgerald

It’s only yesterday but it’s really based upon our dividend policy we talk about before given that we’re going to pass through the distributions received from Rose Rock Midstream and NGL Energy Partners as far the dividend. So we’re going to continue down that dividend policy certainly for the time being.

Stephen Maresca – Morgan Stanley

Okay. And then final one from me just back on the Mississippi Lime acquisition the nine and 10 multiple overall in 2016 is that 70% plant utilization is that good enough to get you that 9 to 10 multiple?

Norman Szydlowski

Yes, I’m just going to jump in, this is Norm, that’s exactly right, that 70% fill of the combined capacity.

Stephen Maresca – Morgan Stanley

Okay. That’s all from me. Thanks a lot everybody.

Norman Szydlowski

You’re most welcome. Thanks Steve.

Operator

Our next question comes from the line of Brian Zarahn with Barclays. Your line is open.

Brian Zarahn – Barclays Capital

Good morning.

Norman Szydlowski

Good morning Brian.

Brian Zarahn – Barclays Capital

On White Cliffs when you would expect the third portion to be drop down to Rose Rock?

Robert Fitzgerald

Hi Brian this is Bob, I will take that question. The timing for the remaining third SemCrude pipeline will be determined. As we’ve indicated few times we’re going to continue to execute the strategy of drop down to focused on the Crude assets. So it could be that we elect to put either one vertical trunk or the Glass Mountain pipeline in before the last third. That option remains at our board disruption and so we’ll continue to monitor the timing and the impact on their right now obviously we’re focused on next one third to get that done by year end.

Brian Zarahn – Barclays Capital

And on the Noble pipeline that you acquired what’s the capacity?

Peter Schwiering

This is Pete, Brian I’d say 12 inch line and can do what the pumping capacity right now can do about 50 can be increase to 70 plus.

Brian Zarahn – Barclays Capital

And then it is fully leased or partially contracted to?

Peter Schwiering

It’s fully leased.

Brian Zarahn – Barclays Capital

Okay. And then looking at your maintenance CapEx for Rose Rock what accounted for the increase, from prior guidance?

Robert Fitzgerald

That increase is going to be driven by the Barcas Field Services acquisition with the truck maintenance and related activities with that acquisition.

Brian Zarahn – Barclays Capital

Okay. Is that good run rate for maintenance CapEx?

Robert Fitzgerald

That was – replacement some jump replacement capital in that number and will be certainly replacing units every year but it’s properly a pretty good run rate

Brian Zarahn – Barclays Capital

Okay. On given the transaction with NGL Energy Partners and Gavilon any implications for Glass Mountain for SemGroup’s perspective maybe acquiring the other half?

Norman Szydlowski

Well, in essence Brian I can speculate on it at this point but I will say that the Gavilon team that we worked with has all moved over to NGL and we had a very good relationship with them and I think that’s going to continue now that they’re adding NGL. So our activities with them I think are just going to continue to improve.

Brian Zarahn – Barclays Capital

And last one from me, given the visibility from Crude Pipeline projects coming in the service additional drops, how do you be view the distribution growth rate over the medium term relative to current run rate?

Robert Fitzgerald

Well, it’s going to be driven by the large it’s going to be driven by the timing of the dropdowns from the SemGroup to Rose Rock, we still have quite inventory of assets to be dropped, so there is a lot of ability to influence that growth rate. We’ve mentioned previously for the near term for 2013 we’re looking at 15% growth rate we’re right on track with that and then when we give guidance for ‘14 we’ll talk more about what that growth rate is going to look like in 2014.

Brian Zarahn – Barclays Capital

Thanks Bob.

Robert Fitzgerald

Thanks Brian.

Operator

Our next question comes from the line of Craig Shere with Tuohy Brothers. Your line is now open.

Craig Shere – Tuohy Brothers

Good morning. Congratulations on another good quarter.

Norman Szydlowski

Thanks very much Craig.

Craig Shere – Tuohy Brothers

Couple of questions here the OpEx reduction at SemCAMS is that sustainable and at SemMaterials it sounds like we had quite recovery from the post selection follow up we have running quarter, is that positioning that unit for potential near term –

Norman Szydlowski

Craig let me take the SemMaterials question I will ask Bob to comment on your CAMS question. Indeed what’s happening in Mexico seems to be much improved business climate. The activity there after the election we had that bottled early in the year where things seem to go on hold, they are in states for bit, that’s recovered very nicely and we have also – you saw our results here in the third quarter have been able to maintain our higher value product mix.

So the results for the unit there in Mexico have been very good and continue to have a good performance and I suspect that in next year that overall business climate is going to continue our best forecast and it could make an opportunity for us to match that business with another entity not that we don’t like it, not that there not doing a good job and we enjoy the benefits of the EBITDA coming forward but it is rather small for us and it’s a little different strategically than the other pieces of our business being ask when we’re doing crude and gas predominately.

Bob you want to adjust the CAMS cost requirement this quarter?

Robert Fitzgerald

Craig I appreciate the question and CAMS I can clarify that, it is a $2.3 million variance related to maintenance capital recovery repeat and lower operation expenses are really more timing related although we do continue to look at how we can manage and reduce our operating expenses on this one for this quarter we see that being largely just related to some timing.

Craig Shere – Tuohy Brothers

I got you. And so, piggybacking a little on Steve’s question the makeup of the drops, I understand this extra 17% piece of White Cliffs you are still figuring out the economics and can’t actually discuss that. Can you discuss the appetite at SCMG SeaCorp for taking back units in general and the percentage exposure you want to control in the LT in your RRMS and MLT affiliate?

Norman Szydlowski

Well, this is Norm, Craig, we try and optimize that and I think we are about 48%, SemGroup is currently as an owner. We have been higher in the past and each time we go through another drop that’s a point of discussion SemGroup as a Board, SemGroup as a company likes Rose Rock a lot as you can appreciate and is at each point in time when we are considering the next drop answering that question again but I think at the present time we are not anticipating any dramatic change to that current ownership percentage.

Craig Shere – Tuohy Brothers

Okay, do I presume correctly that the pressure to take that unit will be greater when you drop some of the international assets in a couple of years because you didn’t get the stepped up basis on those and there is tax implications?

Norman Szydlowski

Right, there is certainly Craig one of the factors that we take into consideration in terms of how we structure the drop down, as what we can do to try to mitigate some of the tax impact. And so to extent that might be one of the opportunity for us in terms of taking back units to mitigate that tax impact that’s something we’ll take into consideration at that time.

Craig Shere – Tuohy Brothers

Okay, and I appreciate the update here and I realize you haven’t given our 2014 real guidance here but I think in the past Norm you have alluded to an expectation of maybe a quarter billion plus capacity of annual growth CapEx for some years to come, can you, I see 300 to 400 that you’ve kind of earmarked for next year, thinking beyond next year can you discuss, if you are seeing any acceleration of that perspective?

Norman Szydlowski

I think well, I would say I don’t know about acceleration Craig, but I think I view it much the same I think what we have seen, we continue to see and activities unfolding that we are going to be able to sustain those levels of projects and organic projects as we continue to call it follow the drill bit and continue to enhance the systems that we have already. So in summary I think indeed I still feel strongly that we are going to be able to continue at about that level of growth from what we can see. That’s again on the organic side and we will give you more definition of that when we come to February and we think through and we are prepared to give you guidance for that year. We can tell you more about the capital but philosophically I see no change in the continuation of our opportunities here.

Craig Shere – Tuohy Brothers

And last question, apart from organic given the significant opportunities, extending in the next year at least, where do you see your appetite given the current market for incremental M&A at this point?

Norman Szydlowski

We will look at as we have been in a very I would just say careful way, Craig to for the right opportunity, for the right acquisition for the one that fits really well, we are keen and are looking hard to find those. We are not at all in the mind to I would just kind of our ruin a good story with a bad deal so we are very, very cautious about over paying in this current market where so much activity going on. So, yes we are looking, yes we were spending time and energy, trying to find those things that make great sense maybe Chesapeake and [inaudible] in the gathering assets is a good example of a sizable acquisition of that nature but we are going to be very, very careful as we make any decisions like that.

Craig Shere – Tuohy Brothers

I appreciate all the answers and time. Thank you.

Norman Szydlowski

Thanks Craig.

Operator

Our next question comes from the line of Will Frohnhoefer with BTIG, your line is open.

William Frohnhoefer – BTIG

Hi guys, how are you doing?

Norman Szydlowski

Fine Will.

William Frohnhoefer – BTIG

Thanks for taking my call. I think a lot of my questions have been asked and answered but I guess one thing I would like to look a little bit closer at, first of all operationally you have got $30 million in spending on the deck and especially with the Montney and Duvernay pipeline growth prospects, I am wondering is there any crystallization of any plans there, any view as what makes sense and also in that context whether or not the increasing number of west bound projects announced in Canada for gas pipeline should have any impact on your thoughts there?

Robert Fitzgerald

Yeah, I will start with that, Will this is Bob, the 30 million in excess to total 38 million of CapEx that we are looking at spending there has largely been spent for the $30 million this year already, there is some additional development out there in Duvernay and Montney. I think you are quite similar as probably getting towards our point of view on how quickly and how much will the Duvernay grow and the Montney grow our business and I think we are again pretty excited about that opportunity.

On the other side we are somewhat dependent upon the Canadian producers to continue to put the drill bit in the ground and to need those additional services but part of that is increasing and expanding some of our capacity out to the Wapiti and that’s where the Montney shale being developed. So we are going to continue to be there for the producers. Norm you might have some additional color on the market overall.

Norman Szydlowski

Which I think overall too Will, our – has been and continues to be those two shale plays are going to be great growth potential for us because of the footprints, because of the plans, because of our ability as Bob mentioned to expand that Wapiti gathering system and bring volumes in. I think that the need for in spite of say pipelines is moving to the east for different reasons or moving to the west for LNG purposes I think all of that still doesn’t take us off our track maybe even reinforces our idea that we can use our existing investment up there and footprint up there to good advantage as these two shale plays start to get more and more developed.

William Frohnhoefer – BTIG

That’s great color, and given the scope of the opportunities that you guys see there, is there chance that SemCAMS might become its own independent asset at some point in the future, we are talking about how the structure over the long term SemGroup being more or less a pure GP down the road analysis a number of different steps you guys need to go through to get there but I am wondering if SemCAMS pleased a part of as a one of the moving part of that structure, how that might work?

Norman Szydlowski

Yeah, I guess I would say never on that but at present we really see, Will still being part of our inventory of dropdown here. So you would ultimately make it part of Rose Rock and of course we have foreign tax leakage but at the same time we would expect that, that’s still is the right track to take. If something turns up later on, if there are other opportunities, if there are other reasons to reconsider that we absolutely would but that’s our current tact.

William Frohnhoefer – BTIG

Okay, that’s all I have. Thanks again, guys.

Norman Szydlowski

You are welcome, Will.

Operator

Our next question comes from the line of Michael [Baden] with Robert W. Baird. Your line is open.

Unidentified Analyst

Good morning, thanks for taking my call gentlemen.

Norman Szydlowski

You are very welcome Michael.

Unidentified Analyst

Can I follow-up on the question as it relates to the Glass Mountain interest in Gavilon you mentioned the potential for continuing to advance already healthy levels of activity with Gavilon, is there any sense of broader strategic rational given the partnerships’ internal relation with NGL and its interest in Gavilon and Glass Mountain as far as more structured, more strategic and more tangible now that this transaction will come to ahead?

Norman Szydlowski

Well, Michael I can’t speculate on potential mergers or something more definitive on that but I will say that Mike Tremble and the NGL team has been doing great job, growing that business and we are large owner in NGL, we increase our ownership in the General Partner early this year and we are looking for more continued success at NGL but beyond that I can’t speculate as to what might unfold.

Unidentified Analyst

Great, thanks Norman, I appreciate that. And can I lastly ask about another M&A deal, can you give us any early read on the Barcas acquisition and how that experienced and formed your view of potential additional trucking M&A in 2014 and beyond.

Peter Schwiering

Yeah, we are very excited, this is Pete by the way. Yeah very excited by the way we are very excited to acquire Barcas and we look at it as an expansion of our pipeline gathering systems bringing barrels to our pipelines and just a natural expansion of our business as far as more MA activity in the trucking area. It’s possible but not probable. We will probably try just to build organically the Barcas asset and build our trucking business internally.

Norman Szydlowski

Yeah and as Pete said Michael too it takes us and the Barcas acquisition took us into some places that we’re not currently or we weren’t before moving out to Ontario’s or New Mexico and so it’s a good opportunity for our scheme to sort of in effect follow the drill bit and continue to get more and more utilization of the existing footprint and may be expanded into some other geographies that we currently aren’t.

But as Pete said at present we are concentrating on getting full value at Barcas and we’ll see return on the M&A front subsequent.

Unidentified Analyst

Great thanks a lot guys appreciate all the color and insight.

Norman Szydlowski

You are very welcome. Thanks Michael.

Operator

And I am not showing any further questions at this time I’d like to turn the call back over to Norm for closing remarks.

Norman Szydlowski

Thanks Kate and thanks everyone for participating today and again for your interest in SemGroup and Rose Rock. And as you can see we got a good clear idea of how we can use these assets and capabilities to keep maximizing value for the shareholders. And we are continuing to make some very, very good progress. Thank you all again. Take good care.

Operator

Ladies and gentlemen, thank you for participating in today’s conference this does concludes the program and you may all disconnect. Everyone have a good day.

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